Sanction-hit Iranian banks line up to enter Turkish financial market

Sanction-hit Iranian banks line up to enter Turkish financial market

Iranian financial institutions, which plan to be active in the Turkish banking sector, also rose above the $300 million paid-up capital requirement. (Photo: Reuters)

April 25, 2012, Wednesday/ 17:23:00/ ERCAN BAYSAL

Iranian investors, who established a record number of companies in Turkey last year, have shifted their focus to the finance and banking sector as Western sanctions implemented because of its controversial nuclear program have eaten away at its economic maneuverability.

According to information Today's Zaman obtained from Ankara financial circles, Iran's three biggest banks have started to work in order to become the newest actors in the Turkish banking sector. Tejarat Bank, Pasargad Bank and another bank, whose name was not disclosed, have knocked on the door of the Banking Regulation and Supervision Agency (BDDK) recently. The financial sources, which preferred to remain anonymous because of the sensitivity of the matter, said a written request has already been sent to the Ministry of Foreign Affairs to apply for a banking license from scratch. The government will make the final decision regarding this issue.

Iranian financial institutions, which plan to be active in the Turkish banking sector, also rose above the $300 million paid-up capital requirement. The sources said that the three Iranian banks are prepared to sacrifice $500 million each in order to get a banking license.

Tejarat Bank is a 28-year-old bank, whereas Pasargad Bank is rather a younger financial institution. The lower limit of the necessary legal capital for banking in Turkey is TL 30 million ($20 million). But, the BDDK is not issuing licenses for less than $300 million in practice, a measure implemented to fortify the country's banking industry following the bitter experiences in the early 2000s.

The sources told Today's Zaman that Iranian financial institutions do not have much chance as the BDDK is not giving banking licenses from scratch easily due to the 2000 and 2001 crises, which caused extensive destruction in the country's finance sector. The BDDK gave a banking license to Lebanon's Bank Audi, last year in October, following a 12-year break. Bank Audi, following the completion of other processes, will enter the sector as the 49th bank in Turkey.

A senior economy official pointed out the presence of an abundant oil and gas money economy in Iran due to rising energy prices. “They have been insistent on establishing a bank from scratch in Turkey since 2010. There is no information from the BDDK and the Foreign Ministry regarding the issue. There are even institutions in Turkey wishing to be partners with these banks. By investing in the banking sector, Iranians will have the opportunity to invest their income from energy and will also provide financing to their companies whose number is increasing in Turkey,” said the senior economy official, who asked to remain anonymous because of the sensitivity of the matter.

Growing Iranian business activity in Turkey

According to data from the Turkish Union of Chambers and Commodity Exchanges (TOBB), last year Turkey witnessed an explosion in the number of Iranian companies established in Turkey. With the addition of 590 companies last year, the number of Iranian companies in Turkey rose to 2,140.

According to the data from İstanbul Chamber of Commerce (İTO), almost all of the Iranian-owned companies were founded in İstanbul, which is often referred to as the business capital of Turkey.

Iran is using the Turkish banking and finance industry to complete financial transactions for trade deals. When strong Western sanctions kick in against Iran’s central bank, Iran wants to count on Turkish financial institutions in transactions with Iranian trading partners. Turkey’s state-owned Halkbank already handles payments for Iran’s oil sales. Turkish officials say transactions go through with the consent and knowledge of US authorities. This may have to come to an end, however, when the world’s biggest electronic bank clearing system, SWIFT, declares it will block the Iranian central bank from using its network to transfer funds. In December, the US forced the partly state-owned Dubai-based Noor Islamic Bank to stop channeling billions of dollars from Iranian oil sales through its accounts.

The rapid increase of Iranian-funded foreign companies in Turkey at an unprecedented rate has raised alarm bells for Turkish authorities, who suspect some of these may be front companies set up to circumvent UN-sponsored sanctions.

Turkey is also concerned that some of the activities of Iranian companies may risk an unwanted confrontation between Ankara and its Western allies because of what is considered a violation of US and EU-imposed unilateral sanctions, albeit not running afoul of UN Security Council resolutions.

TOBB also reported for January 2012 that Iran topped the list for a month with 63 new companies, all limited company types with one exception. This is not commensurate with the level of current trade volume Iran maintains with Turkey. As of last year, the trade volume reached $16 billion, mostly from Iranian natural gas and oil proceeds. Turkey imports some 30 percent of its oil needs from Iran, or 200,000 barrels per day, which represents over 7 percent of Iranian oil exports. Iran also meets one-third of Turkey’s natural gas demand as well. In contrast, Germany, Turkey’s largest commercial partner with $37 billion in non-energy trade, had only 36 companies established in January 2012.

The Iranian regime has so far been able to withstand Western sanctions in part because high global oil prices have provided Iran, the world’s third-largest exporter, with record oil revenues. Iran exports 3.5 million barrels of oil per day, about 4 percent of the oil consumed in the world. Last year, Iran generated $100 billion in revenue from oil, up from $20 billion a decade ago, according to IHS CERA, a consulting firm.

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